This month, GhIPPS, the operators of the national electronics payments switch, finally begun allowing their customers access to their traditional bank accounts via e-zwich cards. 7 Ghanaian banks constitute the first set of participants in the scheme.

When e-zwich was formerly launched in 2008, the then Governor of the Bank of Ghana, Dr. Paul Acquah, described it as having been primarily designed “...for promoting branchless banking and financial inclusion.”

The new attempts by GhIPPS to make e-zwich look more and more like a typical debit card are perhaps a sign of acknowledgment that things are not going to plan.

A few weeks ago, an Accra-based radio station, Joy FM, carried a news report in which several merchants in the Accra area complained of poor patronage of e-zwich point of sale terminals (POS) and the resulting inconvenience of their having to service and power-up machines that were effectively useless.

Many complaints have also come from users of the card about frequent false negatives during the biometric authentication sessions that are required to establish their identity before they can use the card. A false negative means that the terminal, after reading their fingerprints, returns a message that they are not the true owners of the card.

Some merchants, on the other hand, complain about an inability to synchronise their sales transactions with the e-zwich mainframe at the end of the day. While e-zwich POSs come with the functionality to transmit data using a GPRS modem in instances where an internet connection is unavailable, this auxiliary connectivity function sometimes fail compelling the cancellation of transactions mid-way.

These teething problems notwithstanding, the main challenges confronting the e-zwich platform in Ghana are strategic rather than technical in nature.

Given the scope of its ambition it was always expected that some technical difficulties would be encountered, and that these will ease with the passage of time and with increasing adoption and use. Even the most proven systems require a period of time to attain stability.

However, at the outset of implementation, the policymakers and the managers of the e-zwich program made systemic strategic mistakes that considerably weakened its prospects at the get-go. The biggest of these mistakes was to not separate the electronic switch and supporting gateways, the biometric identification backbone, and the consumer smartcard and POS terminal services from one another.

The electronic switch could have been the province of the Bank of Ghana, which could have also managed the biometric backbone on behalf of the public until the NIA (National Identification Authority) was ready to assume that function.

A whole range of services could have then relied on the biometric backbone – NHIS (National Health Insurance Scheme), Electoral Commission, DVLA (Drivers & Vehicles Licensing Authority), Ghana Passport Office, and e-zwich itself. The result would have been a more efficient, a more ready-to-go, harmonised, and integrated national identification system, instead of the haphazard, fragmented, and frankly ridiculous system we have now, in which several agencies are falling over themselves to implement their own biometric databases, leading to great delays and outrageous cost overruns. What is worse is that a few years down the line some bureaucrat would pop up from nowhere to demand interoperability of the various databases in order to better serve national objectives. So, another bundle of money we can’t afford will have to be found to integrate all these sprawling ventures. Sometimes, you wonder.

The national switch would have done what the codeline clearing service (CCS) is doing for cheques now but for electronic payments, and perhaps in a more automated and secure – because of the biometric component - fashion. Though, in digression, one might add that the CCS approach also contain a strong element of risk that has not been discussed enough. The system effectively makes nonsense of security printing. Drawee banks are now supposed to rely on very low-resolution electronic images of cheques to effect payments, and one wonders what purpose, in these circumstances, security features on cheques will serve. After all, the point of a security feature in the first place is to allow critical examination beyond visual inspection. But we digress.

The consumer smartcard part of the e-zwich program, which is represented by the smartcards themselves and the point of sales terminals, should definitely have been left in the hands of the many private-sector developers of electronic payment solutions already working in Ghana. The competition would have forestalled disastrous decisions such as were taken by GhIPPS at the start of the initiative to require merchants to purchase the terminals. This seriously slowed adoption and sapped the initial momentum. It was a huge marketing blunder. Here they were pumping loads of cash into adverts and yet potential customers couldn’t see the terminals anywhere. This in a culture where impulse-driven market behaviour is so predominant?

The reason why e-zwich’s managers made those disastrous decisions was because they were the sole carriers of risk in the scheme. In a competitive market, someone would have tried to undercut their competitors by distributing terminals to merchants for free in an experiment that may have changed outcomes for the better. You may call that “innovation arbitrage”.

The discussion above naturally brings to the fore the policy dimensions of e-zwich. Here, the key flaw was trying to do too much with one system. Quite apart from merging 3 components that would have best been managed apart, even the consumer smartcard part of the business was structured wrongly.

Whether e-zwich liked it or not it was engaged in 3 simultaneous marketing battles. Its most compelling proposition was branchless banking. Being able to use one card to access multiple bank accounts at ATM, branch, and POS levels clearly wins any day. But this is obviously an urban and semi-urban middle-class proposition, with convenience and efficiency being the main draw. Improving financial efficiency is a perfectly commendable objective for a national bank. This should have been e-zwich’s priority. In that sense, the biometric component would have been secondary, since it appears primarily aimed at catering to the special needs of rural, largely illiterate, populations.

The second battle was one e-zwich might have avoided. By entering the debit space they found themselves in direct competition with VISA, which, for being international and an early market entrant, was unlikely to be dislodged by e-zwich’s murky proposition.

The most complex of e-zwich’s 3-tier consumer smartcard finance operation is the financial inclusion bit. We are used to hearing that only 20% of our population is banked. Misinterpreting this statistic can lead to flawed policy reasoning, as happened with e-zwich. The truth is that this figure does not correspond to the more critical indicator: funds outside the banking system, which the Bank of Ghana monitors closely. The currency ratio indices have consistently shown that the bulk of Ghana’s money still passes through the banks. The middle and upper classes control the country’s wealth and they are generally well-banked. This may not speak well of the distribution of resources across the population but it is the reality.

One therefore has to be very cautious when using notions of financial inclusion. Had e-zwich focussed first on remittances it might have made different strategic decisions, but as it turned out its focus was much too broad, much too murky. At any rate is it the case that “poor”, illiterate, rural dwellers have cash hoarded up that can be “deposit-mobilised” into the banking system?

It is not clear that the key financial need in these parts of Ghana is a convenient mechanism for utilising cash. It seems rather that the key need there is the cash itself. The wealthier folks there get, the more middle-class their attitudes would become, and the more they would be assimilated into the conventional banking system (both via “rural banks” and the mainstream ones). In those circumstances, once again, branchless banking becomes e-zwich’s most compelling proposition, not financial inclusion or debiting facilitation. Remittances would have been the added-on, in view of the growing competition in that space.

Indeed if one was to analyse the demographics of the 340,000 e-zwich card issues made so far, one would no doubt discover that the distribution is overwhelmingly urban and peri-urban. The “development case” for e-zwich may have led to a certain romanticisation of the realities on the ground, but managers should have been alert to that from very early on.

A “cashless society” cannot be engineered. It grows on the back of actual transformation of the financial system, steadily and organically not mechanically and abruptly.

Evidence of e-zwich’s escalating failure is starker in the contradictions between the pronouncements of the South African developer of the solution, Net 1 UEPS, which also owns all the intellectual property associated with it, and GhIPPS’.

From what GhIPPS has told the nation, there is a mass marketing drive to rapidly accelerate the adoption of e-zwich cards. But NET 1 in various calls with analysts and in regulatory announcements has sought to create the impression that there has been a deliberate slowdown in card issuance by the Ghanaian authorities in order to allow infrastructure to catch up. This is supposedly to explain why even though GhIPPS has purchased a whopping 3 million of the biometric smartcards in advance they have only managed to issue out a paltry 10%.

Indeed, while GhIPPS is wont to portray its distribution of 3000 POS terminals as a mark of success, the truth is that this level of penetration for a scheme of this scope and for a program of e-zwich’s current duration is unacceptably low. This is made worse by estimates that suggest that monthly transactions (a more useful measure) have so far never exceeded 10,000. Compare this to the success of a private consumer smartcard company in post-communist Hungary, GBC, which having launched in an environment only mildly favourable than ours managed to deploy 17,000 POSs and process 8 million transactions a month during the first phase of their operational strategy.

The problem as we see it is that there is a tendency for government agencies and ministries in our part of the world to be overambitious and hubristic about their capabilities, to build complex wholly novel systems from scratch, and to deny the vital place of entrepreneurship and market forces in the creation and sustainability of genuinely transformative socio-economic programs. From what we have gathered, most of NET 1 UEPS’ national switch and smartcard implementations in other African countries had been on joint venture basis, and card issuance per capita appears to have been more successful in many of these places. Malawi, for instance, is close to issuing 700,000 cards. The same situation prevails in NET 1’s Latin American operations too. Why was the decision taken for the Bank of Ghana to be the sole owner and sole carrier of risks in Ghana’s case?

After committing $32 million to this initiative, including a recent $6 million one-off payment to NET 1 (reportedly with Nedbank), is there any indication that Ghana is poised to start seeing real benefits anytime soon? We are inclined to believe that without urgent reform e-zwich would end up as a colossal white elephant. This needs not happen, since as we have explained e-zwich can become a productive national asset if managed well.

The tendency of governments to take on complex programs without sufficient risk analysis, and the bureaucratic unease of government-paid managers about dealing with the private sector, can prove, as e-zwich has shown, very costly for all of us by leading to the wanton dissipation of scarce resources.

Hopefully, the e-zwich saga offers government of Ghana the opportunity to start doing things differently.

*Courtesy of IMANI Center for Policy & Education and AfricanLiberty.org*